Looking at the Court Decision Which Led to the Shuttering of Locast’s Retransmission of Local TV on the Internet

David Oxenford

By: David Oxenford,
Wilkinson Barker Knauer LLP

In recent weeks, decisions of a U.S. District Court judge in the Southern District of New York led to the suspension of service by the Internet streaming company Locast, which built its business on streaming local television stations generally without obtaining the consent of TV stations or the copyright holders in the programs they broadcast.  Facially, the service looked much like that offered by Aereo, which the Supreme Court determined seven years ago violated federal copyright law by retransmitting TV stations without first obtaining the consent of the copyright holders (see our article here on the Aereo Supreme Court decision).  Locast offered a novel defense to the claims that it was nothing but an Aereo imitator, contending that the Copyright Act permits nonprofit entities to retransmit copyrighted materials without the consent of copyright owners.  The federal judge in the Southern District rejected that argument in his opinion on a motion for summary judgement, and then issued an injunction ordering the service to cease operating (though Locast had already suspended those operations after the initial decision on the motion for summary judgement).  What did the judge find?

Locast had argued that Section 111(a)(5) of the Copyright Act permits “secondary transmissions” of a “primary transmission” (i.e., an internet transmission of an over-the-air television signal) without permission of copyright holders if the retransmissions are made by a government body or nonprofit organization “without charge to the recipients of the secondary transmission other than assessments necessary to defray the actual and reasonable costs of maintaining and operating the secondary transmission service.”  This provision of the rules was intended to allow governments and local nonprofit associations in rural communities to provide TV translators or community antenna systems to bring television service to their communities.  Locast argued that the provision should also be interpreted to authorize its service, which interrupted service every 15 minutes to ask for donations unless a user paid a $5 monthly “contribution” to the service.  The judge determined that the payment of this $5 monthly fee took Locast outside the narrow “nonprofit organization” exception provided by the law.

The judge’s decision was based on findings that the money brought in from these $5 monthly contributions exceeded the costs of running the local service.  Locast contended that it did not make a profit, as any fees in excess of the costs of running the local service were plowed back into the company, allowing it to expand into other markets.  The judge’s decision was based on a narrow finding that “expansion” of the service is different from “reasonable costs of maintaining and operating” the service.  As the law’s exception is a narrow one that abridges a copyright holders rights to control the distribution of its copyrighted material, the judge concluded that it should be construed narrowly.  The statutory exception says nothing about charges to recipients being used to “expand” the service (and thus expand the intrusion on the rights of the copyright holder), so the judge’s decision concluded that the collection of these excess charges took the company outside the exception.

While not so stated, once the exception was gone, this case was essentially the same as that of Aereo.  As Locast was streaming the signals of the television stations without permission, the rights of the copyright holders to control the public performance of their works through their retransmission on the internet was infringed.  This led to the injunction against the continued operation of the service.

What is next?  While the company could conceivably limit its operations so that its contributions did not exceed operational costs, that would make further expansion difficult.  Moreover, it would not end the litigation, as the broadcast companies challenging Locast raised several other arguments about the company’s operations which the court never had to reach because of its determination on this narrow issue.  More likely, we will see an appeal of the judge’s decision with Locast arguing that his statutory interpretation was too narrow.  There is also the issue of statutory damages to the copyright holders, which may need to be decided at some point, though there is some indication in recent pleadings that the parties may be discussing some sort of settlement.

No matter what happens with Locast, we have already seen the expansion of services that stream local TV stations – with the permission of those stations and the copyright holders in their programs.  This is likely to expand, as there clearly is a demand for such products as witnessed by Locast, Aereo and Aereo contemporary FilmOn X (see our articles about court cases finding their service as violating the Copyright laws here and here).  Just as legitimate music services largely tamped down the furor over music file sharing services a decade ago, these legitimate TV streaming services will likely decrease the demand for services that look for loopholes in the Copyright Act as the basis of their business plans.

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